Low Risk Options Trading Strategy - Option Spreads

[prashyrao]

Thanks!

What I understand is 5500 call is bought by FII.
It means they will try to push NIFTY UP.. Is it so..

Regarding my 5500 call sell I should hold and wait till expiry to know where it goes or is there any level I should look for like 5520 then I should get out ?

Thanks

It is not as if FIIs are a consortium who will trade in unison to push the index up or down, that too to protect their Option positions by pouring in the real money. Options are usually tools to hedge the positions. As AW10 puts it rightly, F&O is far more complex and is just one part of big investors' strategy who are invariably concerned about the capital appreciation than punting.
I hope sleep-loss of yours over the last two days will help you to become a better trader in the future. Also, you are not the first one to have got into this position anyway, most of us have been down that road earlier:lol:
Pen down your stake and then look at your prize (profit). Happy trading!

 

[tnsn2345]

Hi

Any advice to hedge my under threat trade.

I sold 5500 CE @ 17rs JULY.

Now running @ 28 and there may be chances NIFTY reaching 5500 July Expiry.

I am not into futures so any option advise.

Thanks

Dear Cool kk,

First of all always believe that there is a solution to any problem. Hence to your position too there is a solution which you can use to tackle this tricky situation you are currently in.

Before that, let me tell you that no one has been able to predict market direction and magnitude on the basis of FII activity so you can conveniently ignore this data. Also OI (near month, mid month etc) is the most confusing statistics which will help get matters worse than what they are (Can elaborate on OI but some other time).

Remember that if you torture data too much it will confess to any crime. And more the reason to follow this rule when you are trading in Options as here not only the direction but TIME is your biggest obstacle to tackle (either buying or writing options).

The situation you are in is quite rewarding as you are trying to pocket the fast decaying value of OTM call option as the expiry nears. I have set such trade successfully on many occasions.

But now as you have got in and there has been a sharp move against your position and you are not into Futures, I would suggest the following action:

1) Keep the position as it is till the market moves below 5500 and if it remains below this level till expiry you are the most happiest man.
2) As normally seen, we see resistance at '00 levels i.e. 5200, 5300, 5500 etc in Nifty and same can be expected here too. (but refer you charts / indicators / methods to confirm this)
3) Even if Nifty breaches 5500 do not act. We normally see a pull back at '00 levels quite often, hence an occasional breach should not worry you. If this continues till Thursday, you are home.
4) As you have collected Rs. 17 premium, you will not lose till 5517, hence if the Nifty stays above 5500 (and you are 'convinced' that it is now comfortable over this level) then at AROUND 5520-25 levels you build a synthetic long future by, writing 5400 Put and buying 5400 Call. Time decay will not affect this synthetic long future set up and if Nifty keeps rising beyond 5520, you will be protected.

Your objective of your positon should change as per the below possibilities :

1) Nifty is below 5500 : (Objective : Profit of Rs. 17)
2) Nifty between hovering between 5490-5510 : (Objective < Rs. 17 profit)
3) Nifty around 5520 and trending upwards: (Objective = No profit - No loss)

Regards,

 

[cool_kk]

Dear Cool kk,

First of all always believe that there is a solution to any problem. Hence to your position too there is a solution which you can use to tackle this tricky situation you are currently in.

Before that, let me tell you that no one has been able to predict market direction and magnitude on the basis of FII activity so you can conveniently ignore this data. Also OI (near month, mid month etc) is the most confusing statistics which will help get matters worse than what they are (Can elaborate on OI but some other time).

Remember that if you torture data too much it will confess to any crime. And more the reason to follow this rule when you are trading in Options as here not only the direction but TIME is your biggest obstacle to tackle (either buying or writing options).

The situation you are in is quite rewarding as you are trying to pocket the fast decaying value of OTM call option as the expiry nears. I have set such trade successfully on many occasions.

But now as you have got in and there has been a sharp move against your position and you are not into Futures, I would suggest the following action:

1) Keep the position as it is till the market moves below 5500 and if it remains below this level till expiry you are the most happiest man.
2) As normally seen, we see resistance at '00 levels i.e. 5200, 5300, 5500 etc in Nifty and same can be expected here too. (but refer you charts / indicators / methods to confirm this)
3) Even if Nifty breaches 5500 do not act. We normally see a pull back at '00 levels quite often, hence an occasional breach should not worry you. If this continues till Thursday, you are home.
4) As you have collected Rs. 17 premium, you will not lose till 5517, hence if the Nifty stays above 5500 (and you are 'convinced' that it is now comfortable over this level) then at AROUND 5520-25 levels you build a synthetic long future by, writing 5400 Put and buying 5400 Call. Time decay will not affect this synthetic long future set up and if Nifty keeps rising beyond 5520, you will be protected.

Your objective of your positon should change as per the below possibilities :

1) Nifty is below 5500 : (Objective : Profit of Rs. 17)
2) Nifty between hovering between 5490-5510 : (Objective < Rs. 17 profit)
3) Nifty around 5520 and trending upwards: (Objective = No profit - No loss)

Regards,

Thanks,

My undersstanding for synthetic future means..

Selling 5400 put --> Current price -->25.05
Buy 5400 call---> current price---> 69.15

Is it the right one...

Regards
cool_kk

 

[simple_trader]

Many seem to be not liking my write up about FIIs activity. Later I have too realized that I should not have written that (regret it!). Any way main emphasize of risk was more, reward was less in writing 5500 call. Had it been written with some other put, margin of safety would have been better.


Happy trading!

 

[anuragmunjal]

Thanks,

My undersstanding for synthetic future means..

Selling 5400 put --> Current price -->25.05
Buy 5400 call---> current price---> 69.15

Is it the right one...

Regards
cool_kk

Dear friend

I would advise u not to go for the synthetic, rather buy nifty futures. with 2-3 days remaining, ur 5400 call has a big chance of expiring in the money....
I am reminded of the song " another one bites the dust"

regards

Anurag

 

[cool_kk]

Dear friend

I would advise u not to go for the synthetic, rather buy nifty futures. with 2-3 days remaining, ur 5400 call has a big chance of expiring in the money....
I am reminded of the song " another one bites the dust"

regards

Anurag

Well,

Lot on it so..
I will chuck this trade keep it there and wait for expiry.
Anyway it just one lot and I can take it as a learning curve. But its good to
learn and take different opinions and then analyse which one suits me.
I will reduce my masage for next week 70$/hr to half an hour 40$ and let that go in this trade, I guess.. it will not be more then 30$.(I am expecting some sarcasm.. will be surprised.. if not got one.. lol)

This is just for learnings so if I plan anytime big trade, I know what to do.. so learning that way..

 

[DanPickUp]

Many seem to be not liking my write up about FIIs activity. Later I have too realized that I should not have written that (regret it!). Any way main emphasize of risk was more, reward was less in writing 5500 call. Had it been written with some other put, margin of safety would have been better.

Happy trading!

Hi simple trader

Do not worry about that. It is your opinion and you had the courage to post it. That also shows, that you make decisions by your self.

Please keep on posting your decisions like others, very friendly writers do in this thread.

Nobody is perfect and that includes me too.

Take care

DanPickUp

 

[tnsn2345]

Thanks,

My undersstanding for synthetic future means..

Selling 5400 put --> Current price -->25.05
Buy 5400 call---> current price---> 69.15

Is it the right one...

Regards
cool_kk

Yes Cool kk, this is long synthetic future. But you need to get into this trade only when Nifty is around 5520 and is likely to trend upward till expiry.

Many seem to be not liking my write up about FIIs activity. Later I have too realized that I should not have written that (regret it!). Any way main emphasize of risk was more, reward was less in writing 5500 call. Had it been written with some other put, margin of safety would have been better.


Happy trading!

Dear S'trader, this was my opinion, though I apologise for some being too straight forward about it. Please excuse.

Dear friend

I would advise u not to go for the synthetic, rather buy nifty futures. with 2-3 days remaining, ur 5400 call has a big chance of expiring in the money....
I am reminded of the song " another one bites the dust"

regards

Anurag

Dear Anurag, any particular advantage for buying Futures over synthetic one? And when should he take this trade? Though Cool has now given it a pass, for academic interest if you could explain

Regards,

 

[anuragmunjal]

"Dear Anurag, any particular advantage for buying Futures over synthetic one? And when should he take this trade? Though Cool has now given it a pass, for academic interest if you could explain"

hi Tnsn

I said this bcos of the stt treatment of the both.(I was not aware that he was short only one lot of 5500 ce). one or two members of this forum (including me) have already burnt their fingers.
If he buys nifty futures and leaves it for expiry, he pays no stt . whereas if his 5400 call expires in the money, he pays stt @ 12500 per crore not on the option value, but on the value of the underlying.

regards

 

[tnsn2345]

hi Tnsn

I said this bcos of the stt treatment of the both.(I was not aware that he was short only one lot of 5500 ce). one or two members of this forum (including me) have already burnt their fingers.
If he buys nifty futures and leaves it for expiry, he pays no stt . whereas if his 5400 call expires in the money, he pays stt @ 12500 per crore not on the option value, but on the value of the underlying.

regards

Dear Anurag,

I agree with the STT issue. But you would realise that most of traders would not leave even a profitable position open till expiry. At expiry one would close it just before the closing hours on expiry day. This would take care of your STT issue. Also for accounting and taxation closed position are easier to compute and for record maintenance.

Also setting a synthetic trade would allow one to exit one leg (mostly closing long Call 5400 earlier if the market moves back or move sideways) if one is convinced about the direction after setting this trade.

Regards,